Institutes see moderate economic growth in euro-zone

The 12-country euro-zone will have a moderate growth of 1.2 percent in 2005, according to the forecasts of a group of 10 most renowned economic research institutes in Europe on Thursday.

In 2006 and 2007, the economy in the euro-zone may become better, but the growth is still modest at 1.8 percent and 2.0 percent separately.

Oil prices have risen by 20 US dollars since April and are expected to remain high at close to 60 dollars until 2007, according to the European Forecasting Network EUROFRAME-EFN.

The EUROFRAME-EFN groups CPB (The Hague), DIW Berlin, ESRI (Dublin), ETLA (Helsinki), IfW (Kiel), NIESR (London), OFCE ( Paris), PROMETEIA (Bologna), WIFO (Vienna) and CASE (Warsaw).

The network has revised down their forecasts by 0.2 to 0.3 percentage points from six months ago for the area's economic growth.

"This revision is limited as the negative impact of the high level of oil prices is substantially offset by the modest depreciation of the euro exchange rate and the drop in long-term interest rates," said a press release from the German Institute for Economic Research (DIW Berlin).

The euro area is still expected to record inflation rates at or close to 2 percent with the unemployment increasing, and interest rates will remain at relatively low levels until 2007, it said.

Fiscal policy will have "a dampening effect" on economic growth at the area level over the next two years.

The policy will be "slightly contractionary" in countries running deficits higher than 3 percent of GDP, while it will be "neutral or slightly expansionary" in the other countries, according to the DIW Berlin.

The euro area includes Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Portugal, Spain and the Netherlands. They started to introduce euro cash in January 2002.

Source: Xinhua